As Republicans demanded, Obama has gotten involved. Meetings were held on Monday with Senate Minority Leader Mitch McConnell and Majority Leader Harry Reid. He met with the Speaker of the House John Boehner last week. Yesterday, Obama took the discussion to the American people with his first press conference since March. Obama was aggressive in a way that has been seldom seen since 2008. Guess what? No middle ground magically appeared. What did happen is that both Democrats and Republicans are complaining that the President said their vacations should be canceled if an agreement on the debt ceiling is not reached soon. Pundits are complaining that the President is demagoging and not moving the ball forward.
So where are we?
- The group led by VP Biden reached agreement on about $1.5 trillion in cuts over 10 – 12 years.
- Republicans have agreed to put military spending on the table, which is a big step for them.
- The US Government will run out of ways to finance US Government spending obligations on or about August 2nd
Most economist and public policy experts are warning that the US must raise the debt ceiling to avoid potential financial armageddon. Many, like Senator Jim DeMint, have suggested that financial armageddon can be avoided if the US just uses all of the tax revenue taken in to pay interest due on the bonds the US has issued. What DeMint and others won’t acknowledge is that this method would cause immediate, steep spending reductions. The estimates of spending cuts are 35 – 55%. Cutting 35% of all spending immediately will not be good for the economy. Check out this opinion piece at Politico for a quick analysis of how bad it will be if we listen to DeMint.
With the US facing such potentially dire consequences what is the hold up? The elephant in the room is tax revenue. Republicans have so far refused to talk about any revenue increases. Republicans argue that we must get spending under control first. To support their argument, Republicans point out that federal spending is over 40% of GDP. This is the highest level since World War II.
To counter Republicans, Democrats point out tax revenue in the US is at a 60 year low at about 15% of GDP. Historically, its been about 18-19%.
My message to the President, Senators and Representatives – get a clue. You are arguing about the deck chairs on the Titanic. Spending cuts will take money out of the economy. Tax revenue increases take money out of the economy. Stop arguing! It is clear that habitually spending more money than is taken in is not sustainable. Americans believe in shared sacrifice. The hold up is not the American people. The hold up is American Politicians creating political theater for political gain. Washington politicians must stop being the problem. Cut some spending, raise some tax revenue and get on with it. Americans are tired of the political theater.
